Tag Archives: average
Average asking prices in UK stabilise in third quarter of 2014
Average asking prices in the UK residential market stabilised in the third quarter of 2014 after nine months of consistent growth, according to the latest figures. The average asking price rose by just 0.85% in the quarter but despite this small increase, the average asking price was the highest on record at £265,545. Unusually, the Greater London market was subdued in the third quarter of the year as it tempered following the huge growth recorded in the first half of 2014, according to the data from Move with Us. The region, surprisingly, wasn’t the strongest performing in the third quarter, seeing the fourth largest percentage growth in Britain at just 1.03%. A moderate rise in the average asking price combined with lengthening selling times indicated average asking prices in the Capital may have settled at £466,147 for the time being. The East Midlands saw the highest percentage growth in the average asking price, which reached £192,787 in the third quarter. This rise is, however, still relatively small at 1.36%. The average asking price dipped in just two regions in a quarterly comparison, in the North East by 0.10% to £154,073 and in Scotland by 0.22% to £161,937. Despite this quarterly drop, the average asking price in both regions grew marginally in a yearly comparison demonstrating stability. ‘The last three months have signalled a shift from the first half of the year, with average asking prices stabilising in most British regions after months of consecutive growth.’ said Robin King, director, Move with Us. ‘However, this didn’t stop prices hitting the highest figure on record with an average asking price £265,545 for Great Britain. In the Capital the market experienced an uncharacteristic slowdown in the third quarter of 2014 and for the first time in years didn’t have the highest percentage increase in the average asking price,’ he added. A breakdown of the figures show that despite expectation of strong price increases expected for the Greater London market, the average asking price levelled in the third quarter for the first time since November 2012, finishing the quarter at £466,147. Year on year, however, the average asking price in the region has increased £87,636 or 18.8%. The average asking price in the South West peaked at a record high of £282,093 in July. It then adjusted downwards slightly and stabilised in August and September, sustaining the increases seen in the second quarter of 2014. By the end of the third quarter the average asking price in the region was £281,985, just £1,043 or 0.37% higher than the second quarter of 2014. In the South East, the market experienced a slight downward adjustment in August, despite a growth of £11,144 between April and July. This is not unexpected on the back of such strong price increases. By September, prices were rising once more albeit at a slower pace in the region and at the end of the third quarter the average asking price in the area was £344,414, the highest on record. This… Continue reading
Is Farmland Caught In A Price Bubble That’s About To Burst?
Angela Bowman, Staff Writer | October 23, 2013 In 2013, the cost of an average acre of Iowa farm real estate jumped by 20 percent in value to $8,400. It’s a story that is seen across America’s fertile heartland with farmland worth about 13 percent more than in 2012. But is farmland caught in a price bubble that soon could burst? John Taylor, national farm and ranch executive for U.S. Trust, a private bank that is part of Bank of America Corp, believes it’s too early to justify fears of a bubble, according to a report by MarketWatch by The Wall Street Journal. “In general, if you ask, is farmland in a bubble, I’ll say, no,” he said. “But if you ask, are some people paying bubble prices, I’ll say, yes.” Farmland has be climbing for the last decade thanks to a surge in farm income and commodity prices, but as these prices settle back down and interest levels start to move higher, some see the next few years as an important test. “This is the moment of truth, I think,” said Brent Gloy, agricultural economics professor at Purdue University. He added that if prices continue to surge in the face of intensifying headwinds, it would then be a troubling sign that a bubble was building in farmland. Read more here. Earlier this summer, Esther George, President of the Kansas City Federal Reserve, argued against the threat of a farmland bubble. Instead, she is confidence in the lessons both farmers and bankers learned – and remember – from being “over-leveraged” in the 1970s. “The run-up in the land values is likely to still create issues for those that are exposed in some way,” she said. “Will we see it as broadly as we did in the ’70s? Not the same scenario. But we will still see some fallout if there is a strong correction.” Continue reading
Understanding Farmland Values And The Long-Term Outlook
Sep 30 2013, 08:38 The last decade for agriculture has been the most exciting in many generations. Rising commodity prices and strong domestic and global demand has driven U.S. row crop farmland and other agricultural assets to record highs. Farming used to be a sleepy business that now is frequently on the front page of the New York Times and The Wall Street Journal. Over the last decade, U.S. farmland values have increased 116%, from $1,340 per acre in 2004 to $2,900 per acre in 2013, according to the U.S. Department of Agriculture. The Midwest Corn Belt, the primary farming region of the U.S., has been the leading beneficiary of the agriculture boom, with farmland values increasing over 200% in Illinois and Iowa. The global demand for agriculture has not only created wealth in the U.S., but across the globe from South America, to Eastern Europe, and Asia-Pacific. Jim Rogers said, “the farmers are going to be driving the Lamborghinis,” and this is coming true. In Illinois, the average farmer income was over $250,000 in 2012, up substantially from $66,000 in 2005. Higher commodity prices, increased production, and expense management, have led to the record farm income. Farmers have reinvested their profits back into their operations, increasing the size and scale of their farming operations and driving up farmland values. Farmland values per acre in Illinois and Iowa as of 2013 are now $7,800 and $8,400 per acre, respectively. Yes, farmland has sold for $15,000 per acre and even over $20,000 per acre, but U.S. farmland is a $2.5 trillion asset class and a few million dollar sales are not representative of the overall asset class. U.S. farmland has been an attractive investment for not only farmers, but investors as well. The consistent income, diversification, lack of correlation to other asset classes, and inflation hedge of farmland has been an attractive investment for individuals and institutions. Despite the recent enthusiasm for agriculture, we believe farmland values are fairly valued based on current market fundamentals and have substantial upside. Farmland values, like all assets, are a function of their future cash flows. Commodity prices are just one variable in the equation and production and expenses are keys to analyzing profitability. The average high quality farm in Iowa generates $950 per acre in revenues. We estimate the average input costs for a high quality Iowa farm to be $425 per acre and average cash rents to be $425, leaving a profit for farmers of $100 per acre, which is what most farmers use as their annual profit target per acre. Over the last 40 years, U.S. farmland has sold at an average capitalization rate of 5.0%. Using this historical multiple, with the average cash rent for a high quality Iowa farm of $425 per acre, generates an average value of Iowa farmland at $8,500 per acre, which is $100 more per acre than Iowa farmland is currently valued at. The last ten years have been the “Decade of the Farmer,” but this is just the beginning and we estimate we are in the second-to-third inning of a long-term bull market. We have highlighted a few data points that are important in driving farmland’s returns over the next decade. Rising Global Demand – The global demand story will continue to strain the world’s food supply. The global population is expected to grow from 7.0 billion people to 9.0 billion people by 2050. Over this same time period, food production will need to double to meet the needs of a higher protein diet. Land Scarcity – There are approximately 3.5 billion acres of arable land in the world and the potential for adding a mere 5% over the next few decades. Soil erosion and population growth are also depleting arable land by the minute. Over two acres are disappearing per minute according to the American Farmland Trust. Improving Technology – Precision technology and sustainable farming techniques will allow farmers to increase profitability over the next decade. Efficient use of fertilizer has already lowered costs to 15% of revenues, from 20% a decade ago. Drought and cold tolerance traits will allow farmers to have more stable yields. New technology will have a substantial affect on margins. Expansion of the Corn Belt – Planted corn acreage has grown 17% over the last decade as high commodity prices and improving technology has allowed farmers to plant corn farther north and west. Expanding infrastructure is also changing the direction of grain. Historically grain has been sent to the Mississippi River and the east, but rising demand in Asia has more grain being sent to the west. Multiple Expansion – Despite the rising interest in agricultural assets and low interest rates, farmland values have not seen an expansion in multiples. Over the last 40 years, farmland has been valued at cap rates of 5.0% and farmland still averages 5.0% cap rates in 2013. Conservative Balance Sheets – Farmer balance sheets are the most conservative in over 40 years according to the USDA. In Iowa, 78% of farmland has no debt against it, up from 75% in 2007. Investors Yet to Participate – In Illinois and Iowa in 2012, 85% and 82% of farmland was bought by local individuals, respectively. Investors’ have yet to have a meaningful impact or participation in the asset class. There is less than 1% of farmland currently in institutional hands. Aging Farmer – As of 2007, the age of the average U.S. farmer was 57.1. Over the next decade there will be a substantial change in who is sitting on the tractor as today’s farmers enter retirement. Typically the average parcel changes ownership once every 75 years. We see this generational change as one of the best opportunities to acquire farmland due to the unusually high volume of land potentially changing hands. Over the next decade, agriculture will have a few bumps in the road. Despite the strong demand story, we have highlighted some risks that may be hurdles in the short-term. Rising Interest Rates – Interest rates can’t stay low forever and we have already seen a substantial rise in 2013. A considerable rise in interest rates may prohibit growth in agriculture and farmers access to capital. Washington – Indecision in Washington and to-be-determined Farm Bill has left farmers uneasy about what support the government will provide in the short-term. Macro Economic Uncertainty – The end of easy monetary policy and potential slowdowns in emerging markets may slow the development of the global demand story. Identifying Assets – Rising agricultural asset values is making it harder to find undervalued assets. Ten years ago you would have made money by purchasing anything, now it takes hard work and deep analysis to identify the right assets that will outperform over the next decade. Understanding Farmland – All farmland is not created equal and two properties across the street from each other can have completely different production and economics. Identifying high quality assets that will benefit from the global demand story is key to an allocation in agriculture. When analyzing an investment in agriculture, it is important to look to the future. Farming has changed drastically over the last decade and will continue to develop over the next decade. Today’s progressive American farmer doesn’t merely work the land: he is also salesman, manager, accountant, buyer, marketer, scientist, agronomist, mechanic, and computer expert. Over the next decade, farmers will continue to consolidate and produce larger amounts of acreage, lowering their fixed costs and overhead. Precision farming and lower fertilizer use will increase margins and drive profitability. Farmland is a long-term investment and the focus should not be on commodity prices and yield estimates over the next twelve months, but over the next ten, twenty, thirty years. Farmland is the one variable in the farming equation that cannot be replaced and with sustainable farming methods, an investment in farmland will last longer than we can even imagine. Continue reading
